I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

Nick Kristof's Mistake Over The GM Ignition Switches And The Costs Of Regulations

Nick Kristof is entirely right in part of his argument in the New York Times today: sometimes regulations do save lives without killing jobs. However, that’s not the end of the argument. Some regulations do kill jobs, prevent economic growth, to a far greater level than they do in the lives they save. And we’ve a way of wo0rking out which is which too, the statistical value of a life. Using this tool we can see that stating that all regulation is good is just as bad as saying that all regulation is bad.

The way we reach this value is we try and work out how people actually value their own lives. Obviously, not by asking “how much do we have to pay to kill you?”. Rather, we assume that everyone knows that there’s risk in everything we do, from getting out of bed in the morning or not getting out of it. And there are also some intersections between the money we earn and the risks we have to earn that money. We’re all aware that being a lumberjack or trawler fisherman (or deep sea diver and so on) is riskier than being an actuary in a nice office working out these statistics. So, given the same skill levels, we try to see whether these higher risks are correlated with higher pay: and they are.

This means that we can now work out how people value an increase in risk and from that, that statistical value of a life. For the US these days that’s around $5 million. There are other estimates but no one thinks that it’s $500,000 and no one thinks it’s $50 million either. At least, no one informed on the subject does.

With one more piece of logic we can now devise a rule for our society. Resources are limited therefore we need to deploy them efficiently. Which means that if we need to spend more than $5 million to save one statistical life then we shouldn’t do it (the calculation changes a little bit if there’s one specific, named individual, under discussion. We spend very much more than that on making sure the President of the United States stays alive each year as an example). For if we did then we would be spending more to save that life that it is worth. But the opposite also holds. If we can save that life for less than $5 million then we should: for the life saved is worth more than the amount we’re spending.

Which brings of to Nick Kristof and the GM ignition case. It’s true that it’s a scandal and it’s likely true that at least one death has resulted from those ignition switches not being replaced. However, Kristof has his math wrong here:

Yet think about Amber Rose, a 16-year-old girl in Maryland who was driving a General MotorsGeneral Motors car (way too fast, while drunk) with an ignition switch the company knew was faulty. She struck a tree and, because the ignition fault had switched off the electrical system, the air bag didn’t deploy. Amber was killed.

We’ll take that as the set up.

While G.M. says that 13 people died in connection with the faulty switches, a consumer group called the Center for Auto Safety says it has found 303 such deaths. G.M. has said it knew about this problem for a decade. It even devised a fix but chose not to implement it because of the cost, which would have been about 57 cents per car, according to congressional hearings. As an internal G.M. memorandum put it, there was no “business case” for preventing crashes.

And that as the counter argument. And then Kristof asks:

So the next time you hear people denouncing “job-killing regulations,” remember that if there had been tighter regulations, smokers might not be dying every six seconds, and Amber Rose might still be alive. Wouldn’t that be worth 57 cents?

But that’s not what the calculation is. Some accounts say that 2.6 million ignition switches need to be replaced. The costs to GM were not 57 cents to save Amber Rose’s life. They were 57 cents times 2.6 million ignition switches. Which is where they said that there’s no business case: no one at all is saying that 57 cents to save a life is too much, only that the cumulative cost of the entire change to save some small number of statistical lives is.

As it happens GM still got their numbers wrong for 2.6 million times 57 cents is $1.5 million or less than the value of one statistical life. So, assuming that Kristof is giving us the cost correctly means that they should have done the recall. But it’s still wrong of Kristof to try and claim that a life would have been saved for 57 cents.

Finally, we also need to be careful of those who would say that some regulation, some regulations, saves lives at an efficient cost therefore all regulations are either necessary or desirable. For our argument is that there’s a cost at which it is unreasonable to try to save lives. That $5 million figure. Meaning that, for example, EPA regulations on benzene, at a cost of $60 million per statistical life saved, should not be brought in. Because the cost of saving that life is more than that life is worth.

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